Yesterday the High Court handed down a decision overturning the findings of the Victorian Court of Appeal in a case involving competing priorities between a secured creditor's charge and a liquidator's equitable lien on a fund.
We last reported on this case in April this year, following the hearing of the appeal by the High Court on 6 March. For the full background to the case, please click here.
The issue considered by the Court of Appeal and High Court was the application of the principle formulated in Re Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171 that a liquidator who incurs expenses in a winding up that pertain to the preservation or realisation of assets is entitled to a first ranking charge for those expenses against any fund thereby created in priority to any other claimant including a secured creditor.
The Victorian Court of Appeal held that the appropriate test for applying the principle was whether it would be unconscientious for the secured creditor to recover the asset realised by the liquidator under its charge in priority to the liquidator and, on the facts and circumstances of the case, found the 'competing equities' to be in favour of the secured creditor.
The High Court rejected the test applied by the Court of Appeal and held that there was "no basis for excepting this case from the application of the principle in Universal Distributing".
Implications
The principle in Universal Distributing and the primacy of a liquidator's lien have been reaffirmed. Accordingly, liquidators can take comfort from this decision in that the priority of a liquidator's lien over a fund for the expenses incurred in preserving or realising that fund has not been disturbed or qualified.
High Court Decision on Mistaken Payments Claims
Australian Financial Services and Leasing v Hills Industries & Anor
In our October 2013 newsletter we reported that Australian Financial Services and Leasing Pty Limited (AFSL) had being granted special leave to appeal to the High Court from the 2012 decision of the NSW Court of Appeal.
To view The High Court To Rule On Restitution For Payments Made Under A Mistake Of Fact publication please click here.
Yesterday the High Court dismissed the appeal by AFSL.
AFSL was seeking to recover money it had paid to Hills Industries Limited (Hills Industries) by mistake. AFSL made the payment believing it was purchasing equipment which it proposed to lease to one of its customers, Mr Skarzynski, under an equipment finance arrangement. In fact there was no order for equipment and Mr Skarzynski had provided AFSL with forged invoices from Hills Industries. AFSL made the payment but received no goods. Hills Industries had no knowledge of the invoices and believed that the payment from AFSL was to discharge an existing debt that Mr Skarzynski had to it.
This decision provides a thorough review of the law of restitution (sometimes inaccurately called unjust enrichment) and the defences to it. In this case the defence raised by Hills Industries was that it had received the payment in good faith and changed its position after applying the payment to discharge Mr Skarzynski's debt.
The High Court found that it would be inequitable to require Hills Industries to repay the money.
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